Closing Costs are often More than Home Buyers Expect

[MortgageQueen]

​Great article for 1st homebuyers. Beware of the hidden costs of buying a home.

I’m buying my first home. What are some of the costs I should plan for, besides the purchase price?


Chances are you’ll have run the numbers to determine what you can afford by way of mortgage amount and payments. But

Some first-time homebuyers may overlook the fact that the price paid for a home is just one of its many costs. That’s why it’s so important to understand the full cost of buying a property.

It’s useful to separate the additional expenses into three categories: pre-closing costs, closing costs and after-closing costs

• A home inspection is the most widely recognized pre-closing cost. It may be seen as an optional expense but it’s also a smart one is because a qualified home inspector, engineer or contractor can identify underlying problems with a home’s major systems, like heating and electrical. If you’re thinking of saving some money by skipping an inspection, ask yourself, “Can I afford to learn about major, costly problems after I take possession?” If you’re buying in a rural area, you should also have the septic system inspected and water testing conducted for the good of your health.Your lender may require, as a condition of financing, that you pay for an appraisal or survey of the property to ensure the home’s value matches its sale price.

Closing costs typically make up the bulk of the additional expenses. In Ontario, a land transfer tax is up to 2 per cent of the purchase price. In Toronto, an additional tax of up to 2 per cent applies. As a first-time buyer, you should talk with your real estate agent about whether you are eligible for a refund of the land transfer tax.

Legal fees will need to be paid to handle the documents and contracts involved in the purchase of a home. Your lawyer will conduct a title search on the home to ensure the seller can actually sell the property and that there are no liens against it. They will also register the deed and mortgage for you.

You may also need to refund the seller for pre-paid expenses — property taxes, maintenance fees, utilities, hot water heater rental fees.

Three different insurance policies round out the closing expenses. You’ll need mortgage insurance if your down payment is less than 20 per cent of the sale price. You’ll need home insurance. And title insurance will protect you against title fraud, errors in surveys and encroachment issues with neighbours.

After-closing costs include moving expenses. Some gas, hydro and water companies charge a hook-up fee and you’ll need to pay if you want to forward your mail from your old address.

Then you’ll need to factor in what you want to do with the dated kitchen and broken fence. If you want to renovate or take care of some repairs identified during the home inspection, it will add to your costs. A fresh coat of paint, some window coverings, or perhaps a shiny new fridge and stove also add up. Understanding the full cost of buying a home will help to budget for these final touches. The latest edition of RECO’s consumer newsletter, RECOnnect, has a useful overview of these costs. You can find it on the consumer side of RECO’s website, reco.on.ca, under ‘Publications and Resources’.



http://www.thestar.com/life/homes/2013/11/15/closing_costs_more_than_homebuyers_often_expect.ht ml?goback=%2Egde_4061544_member_580708937595935948 9#%21

[mandolinatou]

This is so true it is ridiculous. We bought new and anticipated the expenses of the attorney, and the required condo inside (ours) and outside insurance(condo association) (2 different policies). We expected the welcome tax as well. We were told we did not need an inspection because it was new. We did not know at the last minute our bank with no prior warning required an insurance for if our contractor defaulted on payments owed. This cost us 500...and was a third insurance I had never heard of. We also did not expect to pay the taxes for not putting down 25%. So normally we were supposed to put 50,000 on a 200,000 dollar house. We put down the minimum of 5%. So they added several thousand to our mortgage as an insurance in the event of default. I think it was 8,000. However they required we write a check for 850 which was the tax we owed on the insurance we took out....which was made up money mind you. So there was an additional 1350 dollars we owed at signing we did not anticipate. I was pissed and I made an official complaint against my mortgage consultant who reported that the banker behaved responsibly. I honestly believe they should have told us just so we knew what to expect. Do not trust your mortgage company especially if it is laurentien.

[MortgageQueen]

That's too bad mandolinatou. I'm glad you brought up those extras though. . .especially the HST on the mortgage insurance

Hopefully it will give others a heads-up.

[maggiespice]

Yup, expect taxes upon taxes, fees upon fees, have lots of money for the unknown and you will be good. I know, this is my third home!

[Brad]

Who buys a house costing hundreds of thousands of dollars, then doesn't have a measly $1000 for lawyer's fees? I mean the cost of the lawyer, inspection, moving, etc are so insignificant compared to the house itself. Even if you put only the minimum downpayment, the fact that you qualified for a mortgage means that you should have no problem with coming up with the additional closign costs. At least that's how I see it.

[MortgageQueen]

Most Banks require you have 1.5% of the selling price set aside for closing costs now. . .because in fact, many people did not expect those costs.

[super807]

Who buys a house costing hundreds of thousands of dollars, then doesn't have a measly $1000 for lawyer's fees? I mean the cost of the lawyer, inspection, moving, etc are so insignificant compared to the house itself. Even if you put only the minimum downpayment, the fact that you qualified for a mortgage means that you should have no problem with coming up with the additional closign costs. At least that's how I see it.

Sadly, just because someone qualifies for a mortgage does not mean they have even a penny in savings. Sure, people should have a hefty amount saved before purchasing a house, and that amount should be more than the amount they are putting on the downpayment, but many people don't. Lots of people are clueless about financial matters. And lots of people fall into the trap of spending as much on a house as they qualify for. I don't really think that qualifying for a certain amount of mortgage means that one can truly afford that much mortgage, but then again, I don't like for every last cent of our income to be tied up with paying for our house.

[blueeyetea]

Sadly, just because someone qualifies for a mortgage does not mean they have even a penny in savings.

It used to be that banks wouldn't lend you the money if you couldn't afford it, which is what people still believe when they see what amount they've been approved. They don't realise that the banks only looks at how profitable you are the more you owe them.

[mulock]

Just bought my first house and closed on Nov. 15th. Yup, closing costs are a real wack to the bank account. But the majority of them you have no control over (property taxes, etc.). The only ones I had control over were who I chose as a lawyer and who I chose for the home inspection. Keep in mind that cheaper isn't always better with these two. In the end I am a very happy first time home buyer....bought the house for $1900 less than what the previous owners paid for it in 2009, even after they gutted it and redid everything (new kitchen, new bathrooms, all new hardwood floors, new fixtures, new lights, new windows, new roof, all new). Oh and it helps if you put down more than 25% down payment so that you can avoid the mortgage insurance (crock).

[MortgageQueen]

Actually it's 20% down to avoid mortgage insurance. I agree and strongly recommend NOT to buy a house for the amount you "qualify" for.
You end up scrimping to make the payments and many people have nothing left over for improvements or repairs.

[momof5boys]

Just bought my first house and closed on Nov. 15th. Yup, closing costs are a real wack to the bank account. But the majority of them you have no control over (property taxes, etc.). The only ones I had control over were who I chose as a lawyer and who I chose for the home inspection. Keep in mind that cheaper isn't always better with these two. In the end I am a very happy first time home buyer....bought the house for $1900 less than what the previous owners paid for it in 2009, even after they gutted it and redid everything (new kitchen, new bathrooms, all new hardwood floors, new fixtures, new lights, new windows, new roof, all new). Oh and it helps if you put down more than 25% down payment so that you can avoid the mortgage insurance (crock).

My friend had mortgage insurance and was so thankful she did....her husband died of a brain tumor and her house was automatically paid off.

[momof5boys]

Sadly, just because someone qualifies for a mortgage does not mean they have even a penny in savings. Sure, people should have a hefty amount saved before purchasing a house, and that amount should be more than the amount they are putting on the downpayment, but many people don't. Lots of people are clueless about financial matters. And lots of people fall into the trap of spending as much on a house as they qualify for. I don't really think that qualifying for a certain amount of mortgage means that one can truly afford that much mortgage, but then again, I don't like for every last cent of our income to be tied up with paying for our house.

I think it is so important to save as much as possible towards the purchase of a home. We have lived in our home for 22 years - bought it with a long term view in mind and have wanted to move for a number of years because our neighbourhood is going downhill fast. We saved like crazy and all that effort is finally paying off....moving very soon to a very good area - smaller home but new and very functional as we are downsizing anyway. Smaller is better in my view anyway - less heating/maintenance costs.

[super807]

My friend had mortgage insurance and was so thankful she did....her husband died of a brain tumor and her house was automatically paid off.

You are referring to mortgage life insurance, which is different. If you want that option, you pay extra for it. I have a friend who took it because if something happens to one of them, the survivor is in big trouble financially. Dh and I try to avoid putting ourselves into those types of financial situations. We declined that insurance option as we are betting on both of us surviving long enough to get the mortgage paid off, and not paying for this extra will save us money.

In your friend's case, I am sure this meant one less stress during an incredibly stressful time in her life. Thankfully, this doesn't happen to most of us.

Mortgage insurance is to protect the bank if you default on your mortgage. Mortgage insurance wouldn't be needed on the scale it is currently if banks weren't lending more money to people than they can afford. And CMHC is a government-owned corporation, so you know this means that all tax-paying Canadians are actually subsidizing this to a certain extent.

[MortgageQueen]

You are referring to mortgage life insurance, which is different. If you want that option, you pay extra for it. I have a friend who took it because if something happens to one of them, the survivor is in big trouble financially. Dh and I try to avoid putting ourselves into those types of financial situations. We declined that insurance option as we are betting on both of us surviving long enough to get the mortgage paid off, and not paying for this extra will save us money.

In your friend's case, I am sure this meant one less stress during an incredibly stressful time in her life. Thankfully, this doesn't happen to most of us.
.

I strongly, STRONGLY recommend everyone have at least enough life insurance to pay the mortgage off. . .PLUS. Disability and sickness insurance is a very close 2nd. See many foreclosures due to unexpected issues like this. If you're young, it's relatively cheap.

[super807]

I strongly, STRONGLY recommend everyone have at least enough life insurance to pay the mortgage off. . .PLUS. Disability and sickness insurance is a very close 2nd. See many foreclosures due to unexpected issues like this. If you're young, it's relatively cheap.

We have life insurance and disability insurance, enough to have us covered and more, but through other sources. Not necessary to add to mortgage itself, which adds yet another cost, one on which we will most likely not collect. Yes, there is an element of risk, and gamble, but that exists in anything. When we save for retirement, we gamble that we will live past retirement, for quite a while. That affects how much we set aside for it, and once we retire, how much of it we use each year. Those that don't save for retirement are gambling that they will not live long into retirement. It is related to how risk averse we are. Same with choosing a variable rate mortgage or a fixed rate mortgage. Those that are risk averse choose fixed rate.

Some people choose not to have life insurance at all. It is a personal choice, one that really reflects personal philosophy. Just like some people choose not to buy extended warranties. Granted, the stakes are higher with life insurance vs. extended warranty, but in reality most people don't die before their mortgage is paid off (or mostly paid off). Yes, it happens, but not to most of us. Life expectancy in Canada is currently late 70s for males and early 80s for females.